Leave the Ouzo, Take the Cannoli

Financial markets have suddenly decided to ignore Greece and focus all their angst on Italy. What is critical for the global outlook is that euro zone leaders finally stop talking and start doing.

The latest trigger that shifted attention from Athens to Rome came when clearinghouse LCH.Clearnet raised its margin requirements to trade Italian bonds. The yield on 10-year Italian bonds soared above 7%.

The euro zone leaders have been playing for time since the serious talk of a Greek default began to surface back in early 2010 (never mind that the situation has been festering for years).

With the zone’s third largest nation on the line, will action be taken? Small signs suggest yes. German chancellor Angela Merkel said in a speech Wednesday, the 17-nation economic union can no longer delay.

“This could be a turning point,” she said, an opportunity for the zone to rethink its goals and policies.

Business leaders have also climbed on board. The Italian business group Confindustria is urging quick government action to pass reform measures.

Meanwhile, not to be left out, Greece announced a new government that — hopefully — will go ahead with real reforms. Investors are still not convinced. After all, we have heard these lines before.

Inaction has serious consequences. Trading volatility has been one catalyst for consumer and business uncertainty. When economic players are uncertain, they freeze. No buying, no borrowing, no hiring.

U.S. consumers already are cautious about the upcoming holiday season. According to a survey by the Conference Board, 40% of consumers plan to spend less this holiday season.

Not surprising, higher-income households have the biggest gift budgets. They are also more exposed to the stock market. If investors see their portfolios implode, one reaction will be to cut back on non-essentials, like that gift for Aunt Georgann.

Meanwhile, attention is already shifting to the U.S.’s own debt problems. (Leave the ouzo and cannoli. Take the apple pie?)

The deadline for Washington’s Super Committee is fast approaching. One can only hope the 12 members are learning a lesson from the euro zone and will offer a serious, credible budget-cutting plan.

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.